Funding Software Development Through Bonds

TwP writes "There is a rather long but very interesting paper posted on First Monday that describes a software completion bond market. The bond market would be used by programmers to generate revenue for software projects, open source or otherwise. It would also help to identify potential users of the software package - those who invest in the bonds would most likely be those to use the developed software."

Comments

This is not the bond market

[bluGill]

This financing through bonds has little if anyone to do with the bond market as you would find on Wall Street.

A normal bond would be where I give you $1000, and every year you send me $50 interest. At the end of 10 years you send me $1050. (The orgional $1000 + $50 interest) Interest rates change of course, trust worthy companies with little dept pay less interest, while untrustworth companies with a lot of dept pay high interest. You get the idea though, basicaly a bond is a loan.

These bonds are an agreement, I put up $1000 (with a trusted third party), payable to anyone who provides certian software functionality. The third party, upon reciving a program with that functionality would pay the programers. The bonds avaibale would be known so programers could decide what to work on.

I'm not sure if it is a good or workable idea, but it is an idea.

Worse!

[Jason Earl]

How many would invest knowing that it was likely that the software would be released as Free Software at the end of the project whether you paid or not. Why not simply let your competitors pay for development, and you could simply scoop up the project when it was finished.

You could probably even hire the original developer to install it for you (he would be looking for a new job).

This type of system would actually work much better for closed source development. But we already know how to finance those sorts of companies. Basically the whole point of Free Software development is that it requires less working capital, and allows you to spread development costs over several interested parties. If you are going to develop software in a closed source commercial type of setting (ie, cathedral style) why not simply fund your R&D in a more traditional manner.

Some of this is done already

[HomerJ]

Not so much as major large programs such as from Adoble or Mircosoft, but from small companies that have one programs that's in wide use in a nitch market, or companies where their major source of income is one or two major accounts.

Companies that use open source projects could buy bonds, and then direct to the path of the project to suit them. I'm a midrange copration, and I want an office suite. I buy X amount of bonds in OpenOffice, and say I want A, B and C. A, B and C are quickly added, the changes benefit all, and my company has an office suite with the exact fetures my company needs.

I COULD just as eaisly hire programs, and have it done internally. But why? If my company makes wire, why the hell do I want to go though the trouble of another department to optimize the company standard office suite. I have wire to worry about, not office suites.

So, if bond purchacers have an actual say in where they want a project they invest in go, this could be a VERY good thing for all open source projects.

Bond Market

[bleep]

Bonds have to be paid back with interest usually. Considering the what until now has happened in the open source world, namely many projects getting VC funding and going bust unfortunately with little to no ROI, this may not be the best idea. Many investors may regard this as "the same but different". How are the bond buyers going to get their money back is what they are going to ask. And in todays financial markets the buyers a being very picky. I hope it works but some may get burned badly, both developers and bond holders.

Making Money With Open Source

[Arandir]

From where I sit, I see only two ways to generate revenue from Open Source software.

1) Sell a feature-added proprietary version of the software. Aladdin and Trolltech do this and are quite successful.

2) Sell proprietary addons to the software. The Kompany is doing this.

Conspicuously absent from this list are service/support, consulting, and reselling.

I haven't seen any profitability for service/support yet. It might be possible, but I just haven't seen it. Besides which, it's a lousy incentive for quality.

Consulting can be very profitable, and in fact, is where Cygnus made a heck of a lot of money. But consulting isn't generating revenue from the software. It's generating revenue from the consulting! The software merely acts as a glorified resume.

And of course, resellers aren't writing the software anyway.

I wish there was a way to make money directly off of Open Source without resorting to proprietary versions, extensions or addons. But I just don't see it yet. Bonds and other investments don't count, because they are not revenue. Likewise, I don't count donations to the "cause".

Instead of trying to find ways to make Open Source profitable, perhaps we should be trying to find ways to make closed source less onerous. Very few people are against paying for quality software. What they do object to are closed standards, upgrade cycles, and restrictions on personal and internal use.

Starving OpenSource Developers

[LionKimbro]

[Note: This is entirely fictional. Lion Kimbro is an OpenSource user, advocate, teacher, and programmer.]

For just pennies a day, the cost of a cup of coffee, you can save one of thousands of OpenSource developers like these:

Camera pans down and to the left to the image of a shrunken, pale, programmer, intraveneously importing deep brown coffee into his system, working with gdb on debugging a file system.

For just Pennies a day, you can make all the difference for a programmer who has no life, no future. When you pledge your pennies, you will receive, with every quarterly report, a low quality JPEG of your programmer, and also a plaintext email from your programmer, telling you about his dreams for his software.

(Camera pans up and to the right, focusing on an image of Linus Torvalds, with a silly grin, reaching out to punch a final semicolon on his keyboard.)

Just look at what previous contributions have done for these people; As your developer grows and grows, day by day, you will feel such pride at his accomplishments.

Please, go to your PayPal account, send a $15 contribution for this month to "lion@speakeasy.org" and have the satisfaction that for the pittance of a cup of coffee a day, you've made the world a better place.

The Biggest Problem will be their Ratings . . .

[jgaynor]

The BIGGEST problem will be the RATINGS of these bonds. Remember it will be the suits who just got hosed on tech stocks for the last few years giving any software bonds their ratings.

In this market, don't look for too many WS types to hand out many AAA ratings to coding, VC stealin' hippies.

Re:Possible loophole

[angry old man]

These are loopholes that would not crop up if things were done intelligently. I will attempt to explain why for each of your points. Of course, the usual IANAL applies:

1. Programmer will not nominate friend as bond judge. They will go through a proven bond-assistance company. Many law firms already provide these services (e.g. Miller Canfield or Hawkins Delafield & Wood).

2. Half-baked implementations will not be approved because our smart bond issuers will set very strict requirements and the software will be complete when it complies with the requirements. This is currently how good software development processes work. No reason that using bonds for funding would be any different.

Anything else that a bond judge might do would be a breach of contract.

With regard to your comments about discrediting the whole system until reputations can be built up, there are already many good reputations that have arisen from the sale of government bonds. There are many companies that deal with various aspects of government bonds. The difficulty would be for the bond issuers and purchasers to carefully go over the software requirements to ensure that they are clear and attainable.

again: IANAL and I welcome and response from anybody who agrees/disagrees.

Debt financinf of technology is vary risky

[hillct]

Vary few technology companies ever debt finance (ie: through bonds) R&D because the revenue stream from such endevours is uncertain. It is far safer to equity finance such activitied (therough issuing stock) because debt financing is premised on the ability of the company to pay back the money borrowed, in that form, rather than the ability of the company (or OSS project or whatever) to produce equal value in some other form (such as high quality software) where the investor chooses that investment over others based on his perception of the value of the endevour and hid/her opinion of the ability of the company to return value to that investor in whatever investment horizon the investor has chosen for him/herself.

This is why companies like Nortel Networks, hith high debt loads are having a tougher time weathering these tough economic times than companies like Cisco Systems that has a low debt load.

This is basic economics. It's been proven over and over.

--CTH

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